Understanding the Underbelly of Online Marketing & Why You’ll Lose if You Don’t

Understanding the Underbelly of Online Marketing & Why You’ll Lose if You Don’t

Yesterday I wrote a post about “growth hacking” and why I thought it was wrong that people were hating on the term unnecessarily. It’s worth a quick read.

My argument is pretty simple. If you’re a technology startup you need to excel at product, of course. But being best-in-class at online marketing is also a sine qua non to standout from your peer group.

The starting point of product IS marketing, which is what a lot of young entrepreneurs that never studied business don’t realize. It’s building a product that is substantially differentiated, and, as Bill Gross, one of the most prolific tech entrepreneurs of our era says, “It needs to be 10x better than the competition” (because if you shoot for that then in competitive markets you might achieve 3x. Link has a summary of his argument plus a great video).

The start of marketing is figuring out a market need and a way to solve that need better than anybody else. Everything we were taught pre-Internet is still relevant. We short-handed this marketing mix as “the four P’s” – product, price, promotion and place (distribution) – this was devised in 1960 and while a little bit dated is still a useful framework.

Product is simply about defining a physical good or service that would be valued by consumers of the product more than existing alternatives based on functionality, quality and/or price. While many tech startups do this intuitively (say, SnapChat thinking it would be much better if our photos out partying disappeared) it still happens. I wish more startups were rigorous in defining market needs and competitive differentiate versus throwing spaghetti at the wall and seeing what sticks but it seems as an industry we’re breeding the culture of the latter.

People who have been hating on the term “growth hacking” have an argument that boils down to, “We were doing this before. You’ve created a new term to describe WHAT WE WERE ALREADY DOING! Go away, we were here first.” It reminds me of hipsters who like rock bands until they become discovered by the mass market and they accuse the band of “selling out” which basically means we’re cool only if we exist in small numbers. Or the Goths in high school who defined themselves as “non conformist” for all having jet black hair and dressing the exactly same as each other but differently than the mass. Irony, a concept lost on them.

“Growth hacking” simplification drives adoption to a much broader base. By simplifying you get some people who short-hand and never learn the details and therefore half-ass the implementation. This will fail. But you also vastly expand the universe of those who will discover the topic and want to do a deep dive, learn more and then spread the idea to others. It’s why super smart people shouldn’t hate on the idea of simplifying if it provides a tool for the masses. Rebelling is simply a form of snobbery.

Today I want to talk about what I call “the soft underbelly of online marketing,” which is basically a nod to “gray hat” tactics to acquire customers and grow as an early-stage startup. You don’t have the resources to play by the same game as your well financed incumbents – you must look to innovate on customer acquisition.

Online marketing uses techniques for driving promotion and place. SEO / SEM are promotional techniques for marketing through the Google distribution channel, which have yielded huge benefits to many companies – Yelp being a prime example. But relying upon SEO / SEM too much and not building a product and brand that is valued in its own right leaves you reliant upon that channel partner to not change the rules of marketing through their channel. Thus you end up with Demand Media that booms until Google algorithm changes (Panda) changes send it off a cliff along with many other companies overly reliant upon one “place” and one “promotional” method.

Look at Viddy & SocialCam. They had a viral promotional technique that encouraged your friends to download their app to watch a video they posted and a channel (Facebook) that was trying to grow its video audience. That channel giveth and then taketh away so you had millions of users who had not grown accustomed to the feature set of Viddy and thus didn’t stick around. With slower growth and slight product tweaks over time my guess is that Viddy would have been an amazing success story due to a very talented product team. But it wasn’t to be.

Equally I wonder today about the viral video companies overly reliant upon one method (incredibly well written titles that border on linkbait) that are promoted through primarily through the Facebook channel. I think companies like Upworthy can build really compelling businesses in the future – but I’m willing to bet serious cash (Mitt Romney style) that it won’t be by sticking to the playbook that has worked tremendously well to date. Others copy the method and the channel grows weary of that tactic and begins to change the rules.

Enter growth hacking. You nail one promotional method in one place and ride the growth but are in constant testing mode for how your feature set needs to get better at driving continued use of your product and viral adoption across multiple channels while searching for your next pocket of growth.

So What is This Underbelly of Which You Speak?

While traditional methods (PR, advertising, events, seminars) and online methods (SEO, SEM, social, referral marketing) are well understood by most companies there are many methods that are less well publicized. I have watched so many companies go through massive growth and see the commentary in the press wondering how they’re doing it and then finding out from the inside that there is some slightly nefarious technique being employed.

People who have tons of online marketing skills will be saying “duh,” while people who hate anything they don’t perceive as totally moralistic and above board will be cringing, but the reality is that if you are not informed of these “gray hat” techniques you are likely competing against people who know and employ them well – and are probably kicking your ass.

I normally tell companies with whom I work, “In online marketing you’ll likely need to skate right up to the line of acceptability without crossing it in order to grow at exponential rates. You’ll cross it from time-to-time, get checked, and quickly realize you were on the wrong side of the line. Mea culpa and get right back into line. If you’re nowhere near the line of acceptability you’re playing in the wrong rink.”

Here are some examples:

1. When I first started blogging Digg was still at its peak. My articles never appeared on Digg so I didn’t focus on it at all. But I wanted to understand it better. So I tried posting there and got no love. So I called a close friend of mine that seemed to understand how all of this “gray hat” marketing techniques seems to work. He told me that there were a core group of inner Digg users who could control what got on the front page. What? How? Well, there were algorithms that determined what went on the front page that included things like the rank of the submitter and the number of upvotes that it received in the first period of time (I don’t know how long it was).

Of course once submitted you could send out links to your friends and ask them to upvote your content and that would help. But the inner Digg users were all on IM together and when they posted they would instant message their Digg circle and ask for upvotes. Of course reciprocity matters so they would all leap into action.

Why would people go to such lengths? Driving huge audiences can be worth millions of dollars, that’s why. So in those years where you were simply submitting articles to Digg there were a cabal working together that would undermine you. And you thought the Internet was a meritocracy where the best ideas win?

Underbelly.

2. I was talking with a colleague once about how videos go viral. Of course there are “normal” techniques such as having a great thumbnail and link text (both of which should be a/b tested, growth hacking style) and by driving traffic from referral video producers. Of course you can build social sharing tools like Upworthy that make it easier for people to share if they like your video.

But my contact told me that many viral videos start through close networks on Reddit where a degree of formal and informal collaboration of individuals takes place. Of course websites like Reddit and HackerNews try to weed out such behavior. My understanding is that this is why HackerNews makes it hard to create links to articles posted there and I’ve been told both sites have algorithms that favor people upvoting from the “new story homepage” versus direct-click links to the story where there are invariably people who are intentionally trying to drive viral adoption.

If you have NO network of promotion for your story? Good luck. You might write a piece now and then that catches fire but there is nothing repeatable that would be useful for a business.

3. How do people drive SEO growth? This industry is so mature now that the cat-and-mouse game between companies and Google has gotten sophisticated. But of course it wasn’t always so and many online companies gamed the system by paying third-party firms to build link networks of websites set up by hand in low-cost countries to drive up the PageRank of websites. And people employed professional firms to pay money to websites to publish “news stories” that were written by the agency with links back to your site.

Of course we all just recently saw this play out publicly with RapGenius (if you didn’t follow it, the original story is here), which pissed off a lot of people who felt that RapGenius “crossed the line.” Me? I just figured they went a bit too far and were the latest hard-charging company trying to be supremely competitive and made a bad decision on where the line was. The got back on the right side of the line, offered a mea culpa, and are back on Google, this time under a more watchful eye. So they’ll have to look for other competitive advantages for distribution. You can’t play by the exact same rules as everybody else and expect exponential growth.

Underbelly.

4. In the earliest days of widgets many companies realized that by pushing their functionality out to widgets carried on 3rd party sites that pointed back at their website they could drive better PageRank. Hack. And the first people to do this garnered much benefit.

5. If you publish a book, how do you get on the NY Times best seller list? Simply write a great book? Sometimes. But can you be rich and simply buy enough books to be on the list? Of course not entirely or overtly. If large volumes are purchased from a small number of locations I’m told the NY Times discounts this. So there are consultants who have armies of contractors around the country who can go and buy small batches of your book at many locations – all for a fee. So, yes, you can buy a best seller. And you thought systems like these were all fair?

Why would somebody do this? The fees generated from speaking engagements and consulting can be worth several times the investment of getting your book on a best seller list.

6. What about mobile? I’m sure many of you know the techniques that mobile app companies use to get onto the iOS top chart list. Having a high position can make a huge difference to “organic” downloads. So you start by submitting an app and hoping for Apple to recommend you. That gets you 45,000 or so downloads in today’s crowded ecosystem. But then savvy app companies of course know that they have to buy their way into a higher position (people call this “supporting your app store position” so they use incentivized download systems like ChartBoost to do the trick or they spend money on promoting through Facebook Mobile to drive installs. Even if they get a large number of FB downloads that don’t covert, their overall market position improvement may warrant this spend. It’s just like my book example.

Where does it get even grayer? Well for a long time every major mobile app company you know was likely using a consulting firm to drive more downloads at critical periods and this often meant that firm would employ Chinese shops that specialized in driving downloads of users who were never likely to be your target customers simply to get higher rankings in the app store. When Apple learned of this they frowned heavily on it. When they had enough of TapJoy driving downloads through CPI (cost per install) they shut down this component of their service.

Checked.

But many people benefitted. Path has been criticized for uploading address books to the cloud and then using your address book to market to your users. Every company I know was doing this. Path got its hand slapped. Checked. Move on.

7. Ever use an online messaging service like Kik, MessageMe or such? Notice how they often leave you with a number in your tray as though you have new messages only to find out it was just new users who had joined and they were trying to drive you back to use their service? Hack. But it works. For a period of time. Until the norm passes. But these are great products and thus a lot of people stuck around at Kik to continue using it. I’m sure most of you remember getting an alleged new message on Voxer. There was a period of time when I thought everybody I knew was using walkie-talkies to communicate and then later discovered none of them were really using it.

So …

Look …

The entire system is rigged by professionals. You know that deep down. Money is involved and lots of it. We all use the Internet and our mobile phones everyday and it seems open and fair. In business nothing is truly open and fair. They are as open and fair as they can be and it’s up to you to build killer products where people flock to you because they love your features. But you also need to compete to win eyeballs and users playing by the same rules as your fiercest foes.

And if you’re not willing to skate up to the line of acceptability you’re playing with one hand tied behind your back.